The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions

The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions prevail. Copyright © 2007. Avalon Risk Management, Inc. All Rights Reserved.

Third Party LiabilityIssues Facing Customs Brokers & Freight

Forwarders

CCBFA – September 27, 2007

Presented by:Michael S. Brown

Sr. Vice President - SalesAvalon Risk Management, Inc.


Death & Bodily Injury ExposureDomestic Auto Liability


Death & Bodily Injury Exposure - Basis of Liability

• Domestic Auto Liability

- Liability arising out of the hiring of motor carriers and local truckers

- Negligent selection risk


Death & Bodily Injury Exposure -Real World Claims Situations

• Schramm v. Foster (CH Robinson)

• Puckrein v. ATI Transport (recent increase in shipper requests for indemnifications in contracts)


Death & Bodily Injury Exposure -Protecting Your Company

• Seek additional Insured Status on sub-contractor’s liability policies

• Indemnities (in both directions)- Beware of indemnifying shippers- Seek indemnities from carriers

• Inspect scope of your GL policy- Review Auto Exclusion

• Use Caution when referring to “Partners”• Verify carrier safety ratings at www.safersys.org • Consider adding Contingent Auto Liability

Coverage to your E&O policy.


Contingent Auto Liability

• Coverage protects Transportation Brokers & Surface Freight Forwarders when they are held liable for death, bodily injury and/or property damage liability as a result of their hiring of truckers.

• Requires that you be licensed as Broker or Forwarder by DOT (licensure creates need for surety bond (Broker) or cargo liability insurance filing (Forwarder))


Death & Bodily Injury ExposureForeign Liability



• Foreign Exposure- Individual(s) killed or injured overseas as a

result of your negligence



• Worker killed while stripping container of chemicals

• Damage to vessel caused by loose cargo in container



M/V Hanjin Pennsylvania


Hyundai Fortune



• Seek additional Insured Status on packing/crating sub-contractor’s liability policies

• Indemnities (in both directions)- Beware of indemnifying shippers- Seek indemnities from packers/craters

• Inspect scope of your General Liability policy- Coverage Territory- Consider Export Package Policy

• Consider adding 3rd Party Liability Coverage to your E&O policy


Third Party Liability

• Third party liability coverage protects you from claims brought by entities other than your customers (third parties) as a result of death, bodily injury, or property damage.

• Coverage is not widely available.• Similar coverage is usually afforded by business

package policy but typically with territorial limitations and sometimes transportation exclusions.

• 3rd Party Liability coverage often excludes claims for events that occur in the US as General Liability insurance typically covers this.


Death & Bodily Injury ExposureIncidental Product Liability



• Incidental Product Liability

- Liability arising out of Customs Brokerage activities and the perceived “importation

of cargo”



• Broker enters gumball manufacturing machine on behalf of importer

• 3 years later, worker loses hand while operating machine

• Importer of record no longer in business• Broker is sued



• Ensure that your General Liability Insurer is familiar with international trade

• Never act as importer of record• Be careful of indemnifying importers


Workers’ Compensation Exposure


Workers’ Compensation Exposure - Basis of Liability

• Premium Exposure- Liability for payment of premiums on un-insured individuals- For truckers, Payroll is assumed to be 1/3 of “Cost of Hire”

• Claims Exposure- Liability for payment of Workers’ Compensation claims


Workers’ Compensation Exposure -Real World Claims Situations

• Forwarder in NE charged $35,000 in premium for use of uninsured local cartage companies

- Exposure identified in Payables Ledger during physical audit

• Claim against Broker/Forwarder for uninsured contractor falling off of office roof





Workers’ Compensation Exposure -Protecting Your Company

• Certificates from all Sub-Contractors• System of Managing Certificates• Beware of excluded individuals


Assuming Contractual Liability


Contractual Liability

• Cargo legal liability policy covers typical transportation documents/contracts of carriage provided that they were accepted by underwriters during application process. This usually includes HAWB, NVOCC bill of lading, warehouse receipt, Terms & Conditions, etc.

• Increasingly, our clients’ customers ask them to enter into contracts before commencing business dealings.– Contracts usually override or modify T&Cs– Less frequently, amend conditions of carriage



• Most E&O / Cargo Liability policies exclude liability assumed under contract (except for the “normal” contracts that were approved at the time of application) unless specifically agreed by underwriters.

• Contractual liability endorsement maintains coverage for these contracts by specifically listing special customer contracts that underwriters have approved (usually in exchange for additional premium). Signing a contract without this coverage could jeopardize your company.



An Important Policy Exclusion Distinction

All liability assumed by contract is excluded

vs.

The contract will notvoid the existing coverage under the

policy but will not extend it either

Read Your Policy!



When contractual coverage is added back to the E&O policy and a special contract is covered:

• Underwriters often don’t cover every aspect of contract- Many contracts are too broad covering areas

not contemplated by E&O/Cargo Liability coverage

• Typical method is not to broaden coverage but to cover increased cargo liability and agree that signing contract will not void policy

• In addition to your insurer, it is important to have your attorney review contracts


Contract Tips

• Create procedures for contract execution detailing an approval process

• Negotiate (as a rule)• Try to start with NCBFAA Terms & Conditions and

increase limit of liability• Attempt to avoid adding clients as additional insureds

to your policies- Not appropriate on cargo & cargo liability

policies (Loss Payee is more correct)- Splits your limit


Questions?


Thank You

Presented by:Michael S. Brown

Sr. Vice President - SalesAvalon Risk Management, Inc.

[email protected]

Documents

The information contained in this presentation is intended for illustration purposes only and does not provide coverage, actual policy terms and conditions